SEC Proposes Simplification for Guaranteed Debt Offering Disclosures
A proposal by the Securities and Exchange Commission (“SEC”) would simplify the disclosure requirements for guaranteed debt offerings and promote increased registration of offerings. Issued as Release No. 33-10526, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, the proposed changes are intended to reduce companies’ regulatory compliance expenses when offering debt to investors and help issuers organize deals supported by collateral. SEC chairman Jay Clayton also noted that changes will make disclosures easier to follow and encourage debt offerings to be achieved on an SEC-registered basis.
The proposal amends Rule 3-10 of Regulation S-X, which covers financial reporting requirements for guaranteed bond issuers and guarantors. As part of the proposed changes, Rule 3-10 would say a subsidiary issuer or guarantor must have its financial results consolidated with its parent company’s financial statements and no longer has to be solely owned by the parent. Release No. 33-10526 also proposes replacing some of the financial information mandated by Rule 3-10 with financial and nonfinancial disclosures as stated by Regulation S-X Rule 1-02(bb)(1).
Also proposed is an amendment to Regulation S-X Rule 3-16, which requires collateralized debt issuers to disclose financial statements for each affiliate whose securities comprise a large share of the collateral. The SEC wants to replace the requirement for filed financial statements under Rule 3-16 with required disclosures on the affiliate and the collateral. The disclosures would also need to be provided unless debtholders consider them insignificant.
Release No. 33-10526 will have a 60-day comment period beginning the date of its publication in the Federal Register. If the amendments are approved, a portion of Rule 3-10 and all of Rule 3-16 will be incorporated into the new Regulation S-X requirements under Rule 13-01 and Rule 13-02.